Recent Industry News

The Department of Health and Human Services (HHS) Office of Inspector General (OIG) recently issued an Advisory Opinion regarding the use of a “preferred hospital” network as part of Medicare Supplemental Health Insurance (“Medigap”) policies (“Proposed Arrangement”). The requestors are wholly owned subsidiaries of a single parent company and are licensed to offer Medigap policies. The requestors have entered into an agreement with a preferred hospital organization (“PHO”). The PHO holds contracts with hospitals nationwide (“Network Hospitals”). Under the Proposed Arrangement, the requestors would indirectly contract with the Network Hospitals for discounts on the otherwise-applicable inpatient deductibles for their Medicare policyholders (“Policyholders”). In turn, the requestors would issue a $100 future renewal premium credit to the policyholders who use a Network Hospital for an inpatient stay.

The Proposed Arrangement

The Proposed Arrangement involves the following key facts:

The Network Hospitals would provide discounts of up to 100 percent of the Medicare Part A inpatient deductibles applicable to requestors’ Policyholders. (The requestors would otherwise cover these deductibles.) The discounts would not apply to any other cost-sharing amounts.

Under the Proposed Arrangement, the Network Hospitals would provide the requestors and their Policyholders with no additional benefits.

The requestors would pay the PHO an administration fee every time the Network Hospitals provide them with a discount.

The Policyholder would remain liable for payment of any covered service received from a Network Hospital or a non-network hospital.

Any accredited and Medicare certified hospital meeting state law requirements may join the hospital network. Additionally, for Medigap policies, these hospitals must contractually agree to discount all or a portion of the Part A deductible.

Policyholders’ physicians and surgeons would not receive any remuneration by referring patients to a Network Hospital.

When a Policyholder has an inpatient stay at a Network Hospital, the requestors would pass on a portion of their discount to the Policyholder by issuing them a $100 future premium renewal credit.

Requestors would send Policyholders bi-annual letters explaining this credit opportunity and identifying Network Hospitals. The requestors would provide Policyholders with a clear written notice stating that their use of a non-network hospital would not be penalized and have no effect on a Policyholder’s liability for any costs covered under their Medigap plan.

The requestors would identify any savings from the Proposed Arrangement in their annual experience exhibits (which reflect loss ratios) filed with state insurance departments that regulate the premium rates charged by Medigap insurers. In this manner, state insurance departments would take the savings realized from the Proposed Arrangement into account during their review and approval of the plan rates.

The OIG found the following:

The Proposed Arrangement implicates both the Anti-Kickback Statute (“AKS”) and the Beneficiary Inducement provisions of the Civil Monetary Penalties (CMP) Law. However, based on the facts provided, the OIG would not subject the requestors to administrative sanctions under the AKS or the prohibition on inducements to beneficiaries, in connection with the Proposed Arrangement.

The discounts and resulting premium credits would not increase or affect Medicare payments for individual services. The Medicare Part A payments for inpatient services are fixed and would remain unaffected by the beneficiary cost-sharing under the Proposed Arrangement.

The Proposed Arrangement is unlikely to increase utilization. To the Policyholders, the discounts are effectively invisible as they only apply to their cost-sharing obligations that the requestors would otherwise cover.

Any hospital that is duly accredited and in compliance with Medicare certification and state legal requirements can join the PHO’s hospital network. Accordingly, the Proposed Arrangement does not unfairly affect hospital competition;

The Proposed Arrangement is unlikely to influence professional medical judgment as the Policyholders’ physicians and surgeons receive no remuneration from the setup. Furthermore, Policyholders would not incur additional out-of-pocket expense for their inpatient hospital stay at any non-network hospital.

As the requestors have certified that they clearly notify Policyholders of their ability to choose any hospital without incurring additional liability or a penalty, the Proposed Arrangement operates transparently.

The OIG concluded that in combination with Medigap coverage, the discounts and premium credits under the Proposed Arrangements would pose a sufficiently low risk of fraud or abuse under the AKS and the CMP provisions on beneficiary inducement.